DreamWorks results down in Q4

'Panda 2' drives revenue, primarily via homevid

DreamWorks Animation’s week isn’t off to a good start.

Profits at the toon studio plunged 72% during the fourth quarter to $24 million on revenue down 21% to $219 million, as the decline in DVD sales continued to take a toll on the company’s bottom line during the three-month period that wrapped Dec. 31.

DWA also posted lower earnings for the full year overall, with revenue coming in at $706 million (down from $785 million in 2010) and profits at $87 million (off from $171 million).

“Although 2011 was a very successful year for DreamWorks Animation at the box office, it did reveal some challenges for the industry as a whole,” said DWA chief exec Jeffrey Katzenberg during a conference call with analysts Tuesday.

The results come just after DWA’s “Puss in Boots” and “Kung Fu Panda 2” lost the animated pic prize to Paramount’s “Rango” during Sunday’s Oscars. Despite the loss, “I’m hard pressed to feel badly that we made two movies last year that members of the Academy believe are among the five of the best produced (animated) movies of the year,” said Katzenberg, adding that it’s only the second time that a single studio has landed more than one pic in the category since it was introduced.

Yet the loss still smarts a little considering DWA is set to start discussions with Par over whether to continue its current distribution agreement with the studio. Par said Tuesday that a “SpongeBob SquarePants” film will serve as its follow-up to “Rango” in 2014.

DWA still has the option of extending its contract with Par through the end of 2013 while it figures out which moves it wants to make — options include going off on its own and distributing its own pics.

Under current terms, Par covers the marketing and distribution costs for DWA’s pics and is reimbursed once B.O. revenue starts flowing into DWA’s coffers. It also takes an additional 8% fee off of the B.O. haul, as well as 8% of the homevid revenue. Par would like to raise those fees.

Talks between the studios aren’t expected to begin until late spring or early summer, Katzenberg said, adding that a final decision will be made “no later than this fall.”

He added that while it’s still too early to discuss potential moves, “This is an important and strategic opportunity for the company. We are excited by the fact that there are many different options for us, and we’re considering them all.”

DWA’s slate over the next three years includes “Madagascar 3,” the first of the series in 3D, out June 8, and “Rise of the Guardians” on Nov. 21, followed by “The Croods” (March 1, 2013), “Turbo” (June 7, 2013), “Me and My Shadow” (Nov. 8, 2013), “Mr. Peabody and Sherman” (March 21, 2014) and “How to Train Your Dragon 2” (June 20, 2014).

Combined, “Kung Fu Panda 2” and “Puss in Boots” earned $1.2 billion at the worldwide B.O., with more than half of the ticket sales coming from 3D, Katzenberg said.

“Kung Fu Panda 2,” which grossed $665 million worldwide, earned $50 million during the quarter, mostly from homevid, moving 5.1 million units.

“Puss in Boots,” which has earned $535 million worldwide, collected $23.8 million from B.O., as well as merchandising and licensing activities. Pic is already selling well on homevid, performing 20% better than “Megamind,” DWA execs said.

DWA ended up spending more to make and release “Puss” than other pics, with its production budget coming in higher than the $135 million it typically devotes to titles. Paydays for voice talent Antonio Banderas and Salma Hayek were also higher, as were P&A costs.

Company also said it is ponying up more coin for “Madagascar 3” and “Rise of the Guardians,” with budgets hovering around $145 million, because those films took longer to produce, resulting in higher costs. P&A costs will come in at around $150 million-$175 million.

Production costs should return to more normal levels after this year, DWA said.

“Megamind” earned $19.4 million during the quarter from international pay TV sales. It’s sold 5 million homevid units.

Meanwhile, “Shrek Forever After” and “How to Train Your Dragon” generated $8.8 million and $7.7 million, respectively, during the quarter from home entertainment and international TV. Each film sold 9.7 million units through the end of the quarter.

Library and other items generated $110 million during the quarter, including $73 million from DWA’s nonfilm businesses. That includes $65 million from TV specials and series, $36 million from catalog titles and $9 million from its “Shrek” musical in London. A “How to Train Your Dragon” TV series bows on Cartoon Network later this year.

Katzenberg has higher hopes for its films this year, with fewer toons on studio release schedules vs. last year.

By the time “Madagascar 3” bows this June, it will only be the third animated feature released so far this year.

DWA’s results follow the company’s plans to launch Oriental DreamWorks in Shanghai as a joint venture with China Media Capital, Shanghai Media Group and Shanghai Alliance Investment. Announcement was made as China’s next leader, VP Xi Jinping, visited the U.S. with a stop in Los Angeles (Daily Variety, Feb. 17).

New studio will develop and produce original Chinese animated and live-action content for distribution both within China and to other worldwide territories and will pursue business opportunities in the areas of live entertainment, theme parks, mobile, online, interactive games and consumer products. Pics produced through the studio will circumvent government restrictions limiting the release of foreign films to 34 titles each year.

DWA is opening the studio as China’s film biz is “enjoying explosive growth,” Katzenberg said. “We expect that trend to continue over the next four to five years.”

Although DWA’s stock is down 29% over the past year, it’s climbed 10% this month. Shares rose 40¢ to close at $19.65 before results were announced, representing a gain of 2%.